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Apple Threatens Search Giants' Mobile Ad Shares

September 26, 2010

Apple (AAPL) may be gaining share in the U.S. mobile advertising market this year at the expense of Google (GOOG) and Microsoft (MSFT).

Apple will end the year with 21 percent of the market, according to estimates provided to Businessweek.com by researcher IDC. Google's share will drop to 21 percent, from 27 percent last year, when combined with results from AdMob, the ad network it bought in May. Microsoft will drop to 7 percent, from 10 percent.

The companies have been upgrading ad software and buying businesses to grab a larger chunk of mobile advertising, which may more than double in the U.S., to almost $500 million in 2010, IDC said. Apple, maker of the iPhone and iPad, didn't sell mobile ads last year. In January, it bought Quattro Wireless, which had 9 percent of the market in 2009, IDC said. Chief Executive Officer Steve Jobs announced the iAd network in April and launched it in July.

Sold: Best Buy, Unilever, DirecTV

Apple's push into mobile ads may be a reason for its rivals' market-share declines. Since June, the number of brands that have agreed to run ads through Apple's iAd network has doubled, said Natalie Kerris, a spokeswoman for Apple.

On June 7, Cupertino (Calif.)-based Apple said it had $60 million in iAd commitments from marketers, including food and personal-care product maker Unilever (UN), electronics retailer Best Buy (BBY), and satellite-television service provider DirecTV (DTV).

Unilever, whose first iAd made its debut in July, is "extremely happy" with the results of its ad campaigns, Rob Master, the company's North American media director, says in an interview. More than 20 percent of people who click on Unilever iAds—which feature video and an interactive game—check out the ad a second time, he says.

Google's mobile-ad sales are experiencing fast growth, said Jason Spero, director of mobile for the Americas at Mountain View (Calif.)-based Google. The company doesn't break out full-year mobile ad sales. Nor do other mobile ad networks.

Yahoo and Nokia ad shares down, too

"If we are losing share, this market is growing faster than any one we've seen," Spero says in an interview. Google has increased its investments in mobile advertising and AdMob will launch new features in 2011, he said.

Yahoo! (YHOO)'s share in mobile ads will drop to 9 percent this year, from 12 percent last year, while Espoo (Finland)-based Nokia (NOK) will suffer a decline to 2 percent, from 5 percent, according to IDC.

"We are confident in our strategy and focus moving forward," Scott Lahde, a spokesman for Sunnyvale (Calif.)-based Yahoo, wrote in an e-mail. Jackie Lawrence, a spokeswoman for Redmond (Wash.)-based Microsoft, and Laurie Armstrong, a Nokia spokeswoman, declined to comment.

Apple's iAd network may not be growing as fast as CEO Jobs hoped. Speaking at the company's Worldwide Developers Conference in June, Jobs said iAd would grab almost half of all projected U.S. mobile-ad spending in the second half of this year. That may be wishful thinking, says Karsten Weide, an analyst for IDC in San Mateo, Calif.

To grow even faster, iAd will need to add features, such as the ability for advertisers to target specific devices. Philippe Browning, director of mobile strategy and business development at CBS (CBS/A), says he passed on iAd when he found out Apple couldn't serve ads to iPad owners exclusively. He opted for AdMob, which offered more flexibility.

Apple and Google are also facing increased competition from smaller rivals. Cambridge (Mass.)-based Jumptap may see its share jump to 13 percent this year, from 10 percent in 2009, IDC said. Millennial Media, a Baltimore-based ad network, may climb to 11 percent, from 9 percent.

"Millennial continues to gain steam because we are seen as independent," CEO Paul Palmieri says in an interview. Google is promoting its Android mobile-operating system, while Apple sells its hardware. Their interests can clash with advertisers' interests, he says.

New competitors are trickling in. On Sept. 22, wireless-equipment maker Ericsson (ERIC) announced its own ad network, AdMarket. Overseas rival InMobi opened a U.S. office in June. BlackBerry maker Research In Motion (RIMM) has been looking to acquire a mobile ad network, IDC's Weide said. RIM didn't respond to a request for comment.

"It's not going to be a two-horse race" between Google and Apple, Weide said. "The race by no means is over."